Surrounding Development Sold As "Key Component" to Convention Center Hotel Project, But What Do We Know About It?

When the Dallas City Council started the process of selecting a site for the convention center hotel in August 2007, it was stressed that the location "foster economic development in the downtown core through retail and entertainment establishments." Sure, it needed to be within 1,000 feet of the convention center to qualify for state tax breaks, but a big part of the decision would be made based on "ancillary commercial, retail, entertainment development & such other factors that would enhance the visitor/convention experience."

Simply put: It's not enough to just build a hotel. The key to revitalizing the convention center district is to give conventioneers cool places to go when they visit Dallas.

The council and city staff have stayed committed to this concept, with council member and Economic Development Committee chair Ron Natinsky acknowledging its importance when the council recently approved the development and operator agreements for the hotel.

"There's been a lot of hard work to bring all three of these pieces together," Natinsky said. "We've got the development agreement. We've got the operator agreement. And, merged into those, we have the ancillary development, which the council made a very deliberate decision was a key component of this project."

Yet, for such a "key component," how much do people really know about the ancillary development plans? The answer is not much at all, and what is known should be a concern.

When we first spoke with developer Jack Matthews about the scope of his ancillary plans in September 2008, he talked about securing $100 million in equity. That estimate dropped to $80 million in December, and Matthews talked in broad terms about building a residential tower and an entertainment venue.

The contract approved February 18 by the council between the city and Matthews calls for $30 million in development, with a payment of up to $5 million to Matthews for his trouble in addition to the 2.58 percent fee he's collecting for building the hotel. Matthews tells us there's been very little progress over the last few months on exactly what his plans will include, but here's the kicker: Even though no one knows what will be built or when it will be built, Matthews will get back $30 million in capital for the development.

Assistant City Manager A.C. Gonzalez stresses that Matthews will receive assets that are currently "underutilized," such as the unused portion of the $42 million tract of land purchased as the site for the hotel. Gonzalez says he can't specifically discuss other items under consideration, only describing them as "similar in nature" and "assets in the area not being utilized as they could or should."

So, before we move on, here's a recap.

What we know:

1. The council made a "deliberate decision" to make the ancillary development a "key component" of the project.

2. Jack Matthews will receive a 2.58 percent fee ($8.7 million as it stands now) to build the hotel, along with up to another $5 million to build the ancillary development.

3. The ancillary development plans began as a $100 million project in September 2008 before falling to $30 million in the contract signed in February.

4. In return for building $30 million in surrounding development, Matthews will receive $30 million in assets back from the city.

What we don't know:

1. What will be built, if anything.

2. When it will be built, if ever.

It's surprising the debate has reached this point without the anti-hotel group making a bigger issue out of this, especially since Matthews isn't scheduled to hand over his plans until June -- a month after the referendum.

Gonzalez claims the old number is preserved "to have some options to do other things," although he admits that price was only approved by the Economic Development Committee and not the full city council. This brings us to something Angela Hunt mentioned when the development and operator agreements were approved: The contracts can be modified without council approval.

So even though the current contract has the GMP at $335 million and change, it could be modified to $356 million. Gonzalez says the council would be notified but not necessarily called upon to vote on a new amount. So then it could be changed to $366 million then?

"In theory, yes, but in practicality, no," Gonzalez says. "We are steadfastly keeping ourselves behind the financial parameters that we've had from the very beginning of the project."

Additionally, we've heard from sources close to the project that there are some city attorneys who believe the combination of the council approving the developer and operator contracts along with beginning construction on the hotel (which begins April 1) could nullify the May 9 referendum, while others argue the city must sell the bonds in order to make the vote irrelevant.

"I don't really want to get off into that discussion," Gonzalez says. "That's for an attorney to speak to."